Heroic entrepreneurship vs effectual entrepreneurship

Leaders of large corporates generally sense there’s something to the entrepreneurial approach which they would do well to capture, but set a path to failure when they try by pursuing the wrong model of entrepreneurship.

Like most people, they normally have a mental model of entrepreneurial practice which we call “heroic entrepreneurship”. This is not only different from the reality of how most entrepreneurs work but also much harder to make work in large organisations. The less appreciated “effectual entrepreneurship” model is not only more prevalent in the start-up world, but also comes with several powerful tailwinds in a big business environment.

The “heroic entrepreneurship” model of how entrepreneurs work is the most widely held. The visionary entrepreneur leads a small team with minimal resources across every obstacle to eventually achieve a lucrative position in a market that no one else had even spotted. We can all name successful entrepreneurs of this type.

But the research shows entrepreneurs of this kind are outliers within the overall population of successful entrepreneurs. Most entrepreneurs don’t work like that at all, and follow a pattern dubbed in academic circles “effectuation”. Central to effectuation are six principles and one over-riding principle.

A quick summary, why this is better for corporates, and then some links to places you can see this in action.

The overarching principle is that you start with the means you already have and imagine new outcomes that are possible with them. This is in stark contrast to the heroic model of imagining a distant goal first, and thinking about the means later.

The six principles of effectuation:

1. Bird in hand. An extension of that means-first approach. Start by systematically auditing what you have now, and developing value creation possibilities from new combinations of those.
2. Lemons from lemonade. Treat each move like a learning experience. Succeed or fail, generate data which helps you further understand the market or consumers and develop your offer.
3. Affordable loss. Make small experiments in sequence, never betting more than you can afford to lose and still continue.
4. Crazy quilt principle. Develop new ideas and concepts through collaboration with diverse, committed partners and combining their unique resources with your own. New possibilities arise from the new permutations of birds-in-hand.
5. Pilot in the plan. Act like you are creating the future, not trying to discover it, and release the burden of prediction.
6. Effectual cycle. Follow a pattern of assessing opportunities from existing resources, establishing new partners, testing the market, gathering new data, and then repeating the process, each time adding to the first stage the new data, partners and resources you have gathered in the last cycle.

“Heroic entrepreneurship” is very hard to make work in large organisations that are hardwired to resist leaps of faith, disconnected teams and disruption to process. This is part of the reason that these attempts are often very quickly cut down to simply mimicking the most visible outward trappings of start-up life: small teams, working in sprints and wearing trainers, but not fundamentally entrepreneurial.

On the other hand, well executed “effectual entrepreneurship” can be extremely powerful within corporates. The leaps of faith required aren’t huge, collaboration is actively pursued, data and feedback is quickly generated and–most vitally–the “birds-in-hand” available are beyond the wildest dreams of the average startup.

More info:

Michael Girdley is a serial entrepreneur who has written a nice Twitter thread on effectuation from a practitioner perspective.

It’s also interesting to listen to the founder interviews on the popular How I Built This podcast and note just how many articulate effectual-type entrepreneurial journeys (of course, few are actually aware of the term). ?

Sara Sarasvathy is the academic who coined the term and you can find her writing summarised and collated on the Society for Effectual Action website.

And for the leaders in applying these principles to corporate entrepreneurship, you should of course check out a wee global consulting boutique called OneLeap…